Understand target-date retirement funds

Target-date retirement funds, often touted as being convenient and easy to select, warrant careful consideration. But what is a target-date retirement fund? “Target-date retirement funds are hybrid funds - they offer a mix of investments, typically in stocks, bonds and cash,” said Paula Boyer Kennedy, CPA, a member of the New Jersey Society of Certified Public Accountants (NJSCPA). “There is a risk involved whenever you invest in something other than cash, and these funds are no exception,” says Kennedy. Your particular risk will depend on the fund family you are investing in, as well as the target retirement date you set. As a general rule, the investments will begin aggressively and turn more conservative as the retirement date nears. “The most important thing you need to understand before you invest in a target-date retirement fund is what the glide path - or percent of equity over time - is in your particular fund family,” said Kennedy. The tax implications surrounding these funds will depend on whether you invest within a tax-differed retirement plan, most commonly in a 401(k), 403(b) or IRA, or outside of a retirement plan, where you will be subject to the tax treatment of the particular fund you choose.